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What is Mortgage And It’s Different Kinds Under Transfer of Property Act, 1882

Introduction

Prior to the British rule in India, personal laws of all the diverse communities existing in India governed matters regarding the transfer of property. The lack of uniformity in laws leads to uncertainty and ambiguity. As a result of which, commissions were appointed in order to homogenize and consolidate the laws thus leading to the enactment of the Transfer Of Property Act, 1882. Some of the provisions were borrowed from English law, The Law of Conveyancing and Property Act, 1881.

Under the Indian legal system, properties are divided into two categories – movable and immovable properties. Transfer of Movable property is governed by the Sale Of Goods Act, 1930 whereas transfer of immovable property is governed by Transfer of Property Act, 1882. However, this  Act does not cover transfers by the operation of law that is in the form of inheritance,  insolvency, decree, sale etc. The Act is also not applicable for properties obtained through wills and succession.

As per Section 5 of the Transfer of Property Act, 1882 transfer of property is defined as an Act done by a living person conveying property to one or more persons or by himself or by one or more living persons in the present or the future. Living people include a company, an association, or body of individuals whether incorporated or not.

The term transfer includes transfer through sale, mortgage, lease, actionable claim, gift, or exchange. From here on mortgage and its kinds as modes of transfer will be discussed.

Mortgage Under The Transfer of Property Act, 1882

Mortgage is an old English term derived from two French words “mort” and “gage” meaning “dead pledge.” This means that a debtor who owes money to the creditor considers property he has pledged as a security to have no value or as good as “dead,” until the debt is paid in full.

As per Section 58 (a) of the Transfer of Property Act, a mortgage is defined as the transfer of an interest in the specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.

In simple words, mortgages refer to a debt instrument wherein immovable property is provided as security until the debt amount is cleared. This transfer of interest in the immovable property may be for money that is advanced by way of loans or in relation to payment of existing or future debts.

Mortgages can be placed only on immovable properties and such immovable properties include land and other benefits arising out of things attached to the earth such as buildings, machinery etc. However, growing crops, standing timber, and grass are not included in such definition as these are cultivated for a particular use and will be cut or removed for the same thereby becoming movable property.

As per the Transfer Of Property Act, 1882 there are 6 kinds of mortgages and they are as follows –

1. Simple Mortgage

Section  58(b) defines simple mortgage as a  mortgage wherein there is no transfer of possession of the property. Instead, in case the mortgagor fails to repay the loan amount, the mortgagee has the right to have the specific immovable property sold through a court order.

Thus, the key feature of such kind of mortgage is –

  • Does not involve the delivery or transfer of possession of the property
  • Property remains with the mortgagor
  • The mortgagor expressly or impliedly gives the mortgagee power to sell the immovable property that is pledged as security in case of non-payment
  • Though the mortgagee has the power to sell the immovable property he can not do so without the intervention of the court.
  • A simple mortgage has to be made only through a registered document irrespective of the amount of money that is secured as per Section 59 of the Transfer Of Property Act, 1882.

In the case of Mathai Mathai v Joseph Mary[1] a certain property was mortgaged as collateral security for stridhan. The mortgagor was supposed to pay interest towards repayment of the loan amount. However, the deed did not consist of any provision about the delivery of possession and thus, the court held that such deed was to be considered as a  simple mortgage.

In the case of Kishan Lai v Ganga Ram[2] the court reinstated that under section 58 (b) of the Transfer Of Property Act, 1882  the words “right to cause the property to be sold” implies that such power of sale can not be exercised by the mortgagee arbitrarily and requires the intervention of the court.

2. Mortgage by conditional sale

Section 58(c) talks about mortgage by conditional sale. This type of mortgage works on the condition that the mortgagor and mortgagee agree to a prescribed date post which failure of payment will result in the absolute ostensible sale of the mortgaged property. Or in case, such payment is made successfully on the prescribed date such sale will be void and the property will have to be transferred back to the mortgagor.

The term ostensible means appearing to be true but is not so. Over here, the ostensible sale means a sale which apparently looks like a sale but in reality is a security for debt. The key essentials of such mortgages are as follows –

  • There must exist a debt resulting in a debtor-creditor relationship between individuals concerned.
  • On the failure or default of payment of the mortgage money on a certain prescribed date, the sale of such immovable property shall become absolute.
  • In case payment of such mortgage money is made on the prescribed date the sale will become void and the property will be transferred back to the mortgagor
  • The conditions must be mentioned in the same document.

The mortgage deed must be executed with such conditions that are mentioned in the section.  In the case of Tamboli Ramanlal Moti Lal v Gharchi Chimanlal Keshavlal[3]  the court held that in order for the mortgage to be considered as a mortgage by conditional sale the existence of the debt should be inferred from the very nature of conditions present in the mortgage deed. The condition of absolute ostensible sale in case of default in payment and return of property in case of payment prior to or on prescribed date should be mentioned. If such deed does not reflect a debtor-creditor relationship then such deed will not be considered as mortgage by conditional sale.

In the case of Rama v Samiyappa[4] the court held that an essential element of this form of mortgage is that on default of payment the mortgaged property becomes the absolute property of the mortgagee and there is no personal liability for the repayment of the debt on the part of the mortgagor.

3. Usufructuary mortgages

As per Section 58 (d) of the Transfer Of Property Act, 1882,  Usufructuary mortgage is a type of mortgage wherein the mortgagor transfers/delivers or agrees to transfer/deliver the possession of such mortgaged property to the mortgagee and gives him the following authority or powers –

  • To retain such possession of mortgaged property up until the mortgage money is fully paid
  • To be entitled to receive the whole or any part of the rents and profits accruing from the property that is mortgaged
  • To appropriate such rents or profits; (i) in lieu of interest, or (ii) in payment of the mortgage money, or (iii) partly in lieu of interest and partly in lieu of the mortgage money.

Thus, some key features or essentials of such mortgages is as follows –

  • There is delivery of possession of the mortgaged property
  • Personal liability of the mortgagor is not involved. The property is sufficient for the mortgagee
  • The mortgagor is entitled to redeem the mortgaged property when the mortgaged amount is fully paid or the debt is discharged by way of rents and profits received by the mortgagee.
  • The mortgagee can not foreclose or sue for sale of mortgage property
  • There is no fixed time period for the repayment of money.
  • If such mortgage is for Rs. 100 or more, it must be registered but if it is less than Rs. 100 it may be by a registered deed or by delivery of property.

In the case of Prabhakaran v M Azhagiri Pillai[5] the mortgagor had transferred the interest of his property to the mortgagee with authority to retain possession and enjoy the rents and profits of the property until the amount equal to the debt is realized. The court held that beyond this no personal liability of the mortgagor will be involved in the Usufructuary mortgage.

In Hikmatulla v Imam Ali[6] the court held that the mortgagee is entitled to hold on to the mortgaged property until the money due is fully paid. The time period for payment of the due amount is never fixed in Usufructuary Mortgage and if such time period is mentioned it ceases to be a Usufructuary mortgage.

In Chathu v Kunjan[7] the court held that there is no personal liability of the mortgagor involved to repay the mortgage amount and thus he can not be personally sued for the same.

4. English Mortgage

As per Section 58 (e) of the Transfer Of Property Act, 1881 in an English mortgage the mortgagor binds himself to repay the mortgage money on a certain prescribed date, and transfers the said mortgaged property to the mortgagee, but is subject to a condition that the mortgagee will re-transfer it to the mortgagor when the mortgage money is fully paid.

Thus, the English mortgages has the following essentials:

  • There is an absolute transfer of property by way of delivery of possession
  • Personal liability of the mortgagor exists
  • The mortgaged property is transferred absolutely to the mortgagee
  • The transfer is subject to the provision that the mortgagee will re-transfer the property to the mortgagor upon making payment of the mortgage money as agreed

In the case of Narayan v Venkatarama[8] the court held that the English mortgage has three essential ingredients, which are –

  1. The mortgagor is personally bound to repay the money
  2. The property to the mortgagee is transferred absolutely
  3. The property will be transferred back once the dues have been settled.

5. Mortgage by deposit of title deeds

As per section 58 (f) of the Transfer Of Property Act, 1882 Mortgage by deposit of title deeds is a kind of mortgage wherein a person delivers documents of title with regard to the immovable property to the mortgagee or creditor as a form of security. Such a transaction is called a mortgage by deposit of title deeds. This mortgage does not require registration. Some of its essentials are as follows –

  • Such mortgage is valid in the towns of Calcutta, Madras, Bombay, and in any other town specified by the state government concerned.
  • This mortgage does not require registration
  • Merely depositing the title deeds of the immovable property to the mortgagee is enough.

In the case of United Bank Of India v Messra Lekharam Sonam and Co[9] the court held that mere submission of the title deed with regard to the property is the only essential necessary for it to be considered as a security. There is no other additional requirement.

6. Anomalous Mortgage

As per Section 58 (g) mortgage which is not a simple mortgage, a mortgage by conditional sale, a usufructuary mortgage, an English mortgage, or a mortgage by deposit of title-deeds within the meaning of this section is called an anomalous mortgage. Such a mortgage includes a mortgage formed by the combination of two or more types of mortgages as explained above.

In the case of Hathika v Puthiya Purayil Padmanathan[10] a mortgagor borrowed a certain amount from the mortgagee and such property was also handed over to him. The mortgage amount was to be paid within a period of 6 months failing which the mortgagee had the right to sell the property and realize the amount. Though the document described it as a usufructuary mortgage the court held it to be an anomalous mortgage as it had characters of simple mortgage as well as Usufructuary mortgage.

Thus, these are the six different kinds of mortgages under the Transfer Of Property Act, 1882.

References

  1. Transfer Of Property Act, 1882 Bare Act
  2. Transfer Of Property Act Textbook – Avtar Singh

[1] https://indiankanoon.org/doc/173680209/

[2] Kishan Lai v Ganga Ram (1891) 13 Allahabad 28

[3] https://indiankanoon.org/doc/1830317/

[4] Rama v Samiyappa ILR (1881) 4 Mad 179 183 184

[5] https://indiankanoon.org/doc/1624363/

[6] Hikmatulla v. Imam Ali, (1890) 12 All 203

[7] Chathu v. Kunjan (’89) 12 Mad 109

[8] Narayan v Venkataramana, (1902) 25 Mad. 220

[9] https://indiankanoon.org/doc/1714223/

[10]  Hathika v. Puthiya Purayil Padmanathan, AIR 1994 Ker. 141

This article has been written by Shivani S. 3rd year, BA.LLB(Hons.) student at ICFAI Law school, Hyderabad.

Also Read – Right of Redemption Under Transfer Of Property Act, 1882

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